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Third debate reaction and ECB meeting share the spotlight

16:25, 20 October 2016
· By Colin Cieszynski

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Stock markets are mixed in the wake of yesterday's third US presidential debate and ahead of today's ECB meeting.

US index futures plus the Dax are up 0.2% while the FTSE is flat. WTI crude oil is down 0.9% in what looks like a normal correction following a big rally Wednesday.‎

Currency trading has been mixed, gold is holding on to most of Wednesday's gains while EUR/USD remains stuck just under $1.1000. USD is up slightly against many other currencies.

CAD is under the most pressure among majors with traders still speculating on a possible ‎Canadian rate cut after the Bank of Canada cut its GDP forecasts pushed out the return to full speed out to mid 2018 and made dovish comments at the press conference. An actual rate cut could be counterproductive to the government's efforts to rein in house prices, but the threat of a cut enables a lower loonie to continue to do the bank's heavy lifting on stimulus.

Third debate fallout: is it a closer race than polls suggest?

Like many people, I stayed up to watch the big debate last night plus media comments afterwards and again this morning. The main focus has been on whether Donald Trump would accept the results of the vote or not with the Democrats in full 'freakout' mode.

This should send a warning to traders about the results. Currently markets are pricing in a decisive Clinton win and in fact the Mexican peso rallied following the debate indicating traders thought Clinton won. The way Democrats have been hitting the panic button over Trump's move to keep people guessing indicates that it's a much closer race than the polls are suggesting. After all, if it's a blowout, what would there be to contest?

Also interesting was that a CNN poll showed 52% of respondents thought Hillary Clinton won the debate, but this was down from 57% who thought she won the second debate and 62% who thought she won the first debate. One doesn't have to be a technical analyst to spot this trend.

What this all means is that the election may be a lot closer than many people think, and that a Brexit style surprise is still possible so traders should have a plan and not be complacent.

Will Draghi extend QE?

This morning, focus turns to the ECB meeting and Mario Draghi's press conference. There were no change in the rate decision as expected so focus now turns to what Mr Draghi has to say. Traders are expecting the central bank to crush talk of tapering QE purchases. Traders also will be watching for signs of whether QE could be extended past March. EUR has been in retreat lately suggesting traders are expecting a neutral to dovish day; any hawkishness would come as a surprise.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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